Finance Bill

Geraint Davies Excerpts

Tuesday 2nd July 2013 Commons Chamber

[Chris Leslie]

We had that debate on a financial transaction tax a few weeks ago. I think we managed to extricate from the Minister, despite his reluctance, a suggestion that somehow, somewhere, buried in the Government, there was still some flicker of interest in a financial transaction tax. I am not sure whether it has been snuffed out by this particular measure. If this is the abolition of stamp duty on unit trust transactions, what will be next? What else will they give away to this particular set of fortunate investors? Will the Minister rule out plans to abolish the other financial transaction tax, the stamp duty on equity transactions? Do the Government have that long-standing financial transaction tax, which has been around for several hundred years, in their sights? Conservatives are second to none when it comes to defending the best interests of the wealthiest in society, and I take my hat off to the Minister for managing to slip this little one through in the Budget provisions without anybody really spotting it.

[Geraint Davies (Swansea West) (Lab/Co-op)]

My hon. Friend has already pointed out that this £150 million saving per year for the very richest should be compared with the bedroom tax saving of £450 million from the very poorest. The difference between the two measures is that the bedroom tax is hitting thousands upon thousands of the poorest people. The bedroom tax costs about £10 per week, and I have had people tell me that their disposable income is being reduced from £30 to £20 per week. With this tax, the £150 million saving is going to a very small number of people who will receive a large amount of money. These are the choices we face in Britain today. Does my hon. Friend think that that is disgraceful?

[Chris Leslie]

I am more disappointed that the Government think they can get away with it. I want very much to hear the Minister defend this decision. I am sure he will do so with gusto and alacrity, as ever, but I know that deep inside—the record will reflect that I am looking into his eyes—he realises that this is a completely daft idea. This is not a priority at this time. It is a crazy priority when the public are struggling, and I know that in his heart of hearts he agrees with me. It is not clear where this idea has come from. I saw something on the Deloitte website that said there had been many decades of lobbying in favour of this particular change. Perhaps the lobbying is something that the Treasury has eventually succumbed to.

When we line this measure up alongside other examples of largesse the Government have shown to those who are doing very well, it is notable. We cannot take it out of the context of the paucity of the bank levy, which was supposed to raise £2.5 billion in the previous financial year but did not. Last night, the Minister said that they will try to get £2.7 billion next year instead, but they are already £1.9 billion in arrears from the previous two financial years. It will be more than a decade before they are able to recoup the loss. It was notable last night that he did not say that he was certain that £2.5 billion would be brought in from financial years 2011-12 and 2012-13.

I will put the bank levy to one side. After all, what is a couple of billion pounds between friends? The Government refuse to repeat the bank bonus tax, despite the fact that financial services bonuses leapt by 64% in the first month of this year, when all those who benefited from the reduction in the additional top rate of tax—earnings over £150,000 were taxed at the 50p rate, but from, I think, 6 April they were taxed at the 45p rate—rushed out all those bonus payments. Of course, those individuals found ways and means to avoid the higher rate of tax, as the Government helpfully flagged the change up for them far in advance.

[Geraint Davies]

Does that not contrast sharply with the 2 million people in Britain who are on payday loans? They could each be given £70 with that £150 million. They are desperate for the money, but instead these tens and hundreds of thousands of pounds are all focused on, again, the very rich. Does that not speak volumes about the cruel values of the Tories?

[Chris Leslie]

The point is the context in which these things arrive from the Government. Perhaps it is our fault that we have not successfully flagged up for the wider country what exactly is happening in the Budget or what will happen in future Finance Bills; but for the time being, it is incumbent on the Minister to do at least this one thing: let us have the distributional analysis showing who benefits from the change. Which deciles, in terms of the affluence of society, will gain the most from this £150 million tax cut? The case for it has not been made. It has not been high on the public agenda. There is no problem in the City or the investment management community of such significance that it merits this intervention by the Chancellor, at the expense of the health in pregnancy grant or the cuts to tax credits that merited the pasty tax and the caravan tax.

This £150 million tax cut is an incredibly important totem of the Chancellor’s priorities. It is a sign that he does not care about the fact that most people—the typical family—will be paying an extra £891 this year because of the tax and benefit changes made since 2010. Those who have found themselves pushed into greater deprivation and poverty will look at the decision and be absolutely disgusted that this is the Government’s priority now. This change has no justification. The Minister has not made the case for it. We need more information about who benefits from the arrangement.

All that comes on top of the Government’s giveaway on the bank levy, their failure to repeat the bonus tax, the millionaires’ tax cut from 50p to 45p and other changes hidden in the Bill, such as making the additional tier 1 debt coupon tax deductible for the banks, which The Times described thus: “Chancellor to the banks’ rescue with secret £1 billion tax break”. Lots of people will have questions, although not necessarily about this Minister’s priorities. He is doing the best of a bad job and having to cope with the hand he has been dealt. He is, I am sure, a decent and honourable chap, but when he goes home this evening, turns on the television and sees the hardship afflicting families up and down the country, I would ask him to keep in mind whether making a tax cut of £150 million for those investment managers was the right call to make at this point in the economic cycle, such as there is a cycle involved.

[Chris Leslie]

That is the £150 million question. The tax cut is £150 million in the key years, but it goes up to £160 million in financial year 2017-18. It gets greater and greater as time goes on. If we roll all the numbers together, as the Chief Secretary to the Treasury is wont to do when presenting figures in the Budget, we get a total of £600 million of tax cuts in this area in the Red Book. I am sure that you could think of a good use for £600 million, Mr Deputy Speaker. At the very least, we want a distributional impact assessment. We want to know who will benefit from the measures, and it is incumbent on the Minister to tell the House the facts.

[Geraint Davies]

I have been provoked to stand up and speak on this outrageous stealth tax, which is an attempt to subsidise the very richest in a clandestine way. If hon. Members had known about the £145 million being crept into the back pockets of the very richest people in the City, the Chamber would have been full of Members speaking in protest, as I am doing now.

The direction of travel in the Budget and the spending review continues unabated. It consists of blaming the poorest for the bankers’ errors, punishing them with cuts in public service jobs and wages and cuts in welfare benefits, particularly outside London and the south-east—and especially in Wales—then pumping all the infrastructure growth opportunities into London and the south-east, to line the pockets of the very richest, many of whom were responsible for the disaster in the first place.

The Government are allegedly trying to balance the books, but they are dismally failing to do so. They have decided to sack 600,000 public sector workers. This is having a disproportionate effect in certain parts of the country. Many parts of Wales, for example, are 50% more likely to have public sector workers than London, and it is in those areas that the cuts are biting deepest. Meanwhile, the money is going to places such as London, where the cuts are not so deep, not only in infrastructure investment but in measures such as this one. We are talking about getting rid of stamp duty on transactions in the City of London, where a small community of people will benefit from that tax cut of £145 million a year, and rising.

We must set against that the fact that 2 million people are already using payday loans. Dividing the £145 million between those 2 million people would give them about £70 each. Only today, I have been talking to colleagues in Swansea about the emerging problem on our council estates, and on estates generally, of companies setting up shop to take advantage of people in dire need by offering them payday loans. At the same time as the Chancellor announced this cut in stamp duty, he asked the newly unemployed to wait an extra week before receiving their money. That will of course feed the stomachs of the payday loan sharks. Those sharks are not just the well-known wonga people; they are also the new, smaller operations setting up in very poor communities. They hire people in the community, on a commission basis, to persuade their neighbours to take out loans at exorbitant rates of interest that they cannot afford. They then harass them by phoning them in the middle of the night or following them into the supermarket, for example, until they repay the loan. That is the cruel reality of Tory Britain today.

Alongside that reality, we have this ghastly attempt to give another £145 million to some of the richest people in the banking community, who were part of the problem in the first place. The alleged justification is to make the City of London more competitive. It appears that these whizz kid City folk, with their red braces, zoom up in their Rolls-Royces to see their old Etonian friends, such as Ministers, and look in awe at them and say, “Have another champers, will you, Minister?” and all that sort of stuff.

[The Financial Secretary to the Treasury (Greg Clark)]

I think that the hon. Gentleman will find that I went to a comprehensive school in Middlesbrough, not to Eton.

[Geraint Davies]

I am sorry that the right hon. Gentleman no longer has any school friends. Those who have abandoned the communities from which they came have proposed legislation to punish the poorest and reward the richest, which is a great shame. It is not too late for the Minister to think again about what is fair and right in distributive economics.

The reality is that the marginal impact of this change on the competitiveness of the City of London is very small indeed; it is not a serious argument. I can imagine the greed-fuelled lobbyists who come here on behalf of the City to demand an extra £145 million being the sort of people who say, “Oh, well, we have got to give these people more money, because otherwise they will leave the country.” We have heard all that before. In any case, many of those individuals have all sorts of tax havens, about which the Government pay lip service to investigating.

At the same time as we hear alleged concerns about those rich people avoiding tax, the Government say to them, “I’ll tell you what; here’s another 5p off the income tax.” People sometimes ask why there has been a 64% increase in bonuses this year. Could it be because the Government have provoked it, as people move their income from a tax year where they pay 50p to a tax year where they pay 45p? It was completely predictable, and it was even factored into the Treasury figures in the form of behavioural changes. The perverse thing was to hear the argument, “Oh, well, we are going to move to 45p instead of 50p because more money can be raised that way. Look, we are going to encourage our mates to move all their money to save tax”—[Interruption.] That proves that it is an absolute farce.

[Tim Loughton (East Worthing and Shoreham) (Con)]

Will the hon. Gentleman give way?

[Geraint Davies]

Of course. I was wondering whether the mumbling man was listening to anything, but I shall certainly give way to him.

[Tim Loughton]

There is of course always a temptation not to listen when the hon. Gentleman is on his feet. Does he remember the Finance Bill 1997, on which Committee he and I both served? I remember him making a similarly prejudicial class-bashing speech then and accusing merchant bankers or anyone working in the City as parasites, yet this industry accounts for many billions of pounds of revenue to the Exchequer and employs 1 million people. Does he still hold to that completely outrageous view? From what he is saying, it sounds as though he does.

[Geraint Davies]

It is interesting to see that the hon. Gentleman has changed from his red braces to blue braces—and very nice, too! I obviously do not regard the whole City of London and the banking community as parasites, as they are a major engine for exports, growth and productivity in Britain. The issue is about managed capitalism and what is the acceptable face of capitalism. It seems to me that many people on the hon. Gentleman’s side are not at all concerned, as more and more money is given to people who have already acquired enormous pots of money.

The distribution of income has shifted massively since 2010. We have seen the incomes of a large number of people in the top 10% growing by 5.5% each year over the past two years—at a time when most people have had pay cuts or pay freezes, certainly in the public sector, or lost their jobs. We have heard the Government boasting—this is their latest creative thought—that an extra 1.2 million people are in jobs, yet that has been contradicted by the Office for National Statistics. Even if there were another million extra people in work, with no extra growth and no extra output in the economy, productivity is going down and things are not going well. Nevertheless, the answer from the Government is still to give more and more money to the richest people and less to the poorest, and that is supposed to get us out of the mess, but it does not.

This stamp duty on transactions is the tip of an iceberg. I am sorry, Mr Deputy Speaker, that I have come on to describe the entire iceberg rather than the tip at the top, which we are talking about. It is important for people to stand up and be counted on this issue. There is no justification for these extra few buckets of money being thrown in the direction of those who have most. There is a great need for a more balanced growth strategy, whereby there is investment in infrastructure across the piece and where the opportunities for tax and spend are more fairly spread, so that together we can build a future that works and a future that cares—a one-nation Britain of which we can all be proud. I do not think that this suggestion makes sense, so I am very much in favour of putting a halt to this £145 million handout to people who are already rich, as it will not make any appreciable difference to the competitiveness of the City of London.

[Greg Clark]

This has been an astonishing debate. I have a lot of time for the hon. Member for Nottingham East (Chris Leslie), but he must have been pretty dozy in recent months if he thinks that this is a Budget measure that has emerged by stealth having hitherto been hidden from view, because it was given considerable prominence in the Chancellor’s Budget speech. The Chancellor said, in the Chamber,

“I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.”—[Official Report, 20 March 2013; Vol. 560, c. 939.]

However, the measure did not only feature in the Chancellor’s Budget speech. It was the subject of a press conference, and received quite a lot of publicity on the money pages. I should have thought that the shadow Financial Secretary would be aware of that, and would know what a good reception the proposal was given in the very important financial services industry.

Many misconceptions need to be cleared up. The hon. Member for Swansea West (Geraint Davies) talked about banking, but this measure has nothing whatever to do with banking. A regrettable consequence of what has happened in recent years is that the financial services sector as a whole has too often been equated with the banking industry and associated with its frequently catastrophic misjudgments and regulatory failures, and people have been tainted unfairly by that association. Just as there are hundreds of thousands of ordinary working people employed by banks who bear no responsibility for—indeed, are sickened by—some of the misdeeds that were committed by those at the top before and during the crisis, there are people who work hard for a living elsewhere in financial services, who contribute to our national income, the taxes that pay for our public services and our foreign exchange earnings, and who have certainly not put taxpayers' funds at risk in the way that characterised the worst excesses of the banking industry.

The investment management industry in this country is a case in point. It employs 30,000 people across the United Kingdom, mostly in areas such as administration, IT and legal services. At least 10,000 of these people, who are directly employed in the sector—I am not talking about those who are ancillary to it—are based outside London and the south-east. A large number of them are concentrated in Scotland—I should have thought that the hon. Member for Dumfries and Galloway (Mr Brown) would be aware of that—and in the north-west and the north midlands. In fact, 12% of the asset management industry is in Scotland. I am amazed that the hon. Member for Nottingham East—not just as shadow Financial Secretary, but as a Nottingham Member of Parliament—did not recognise the important contribution made by investment management in his city. He should be aware that the professional services sector in Nottingham is an important component of the city’s economy.

--- Later in debate ---

The opportunity for the UK to attract those funds depends on the abolition of schedule 19. That is why the Budget proposed, in pretty high-profile terms, the abolition of schedule 19. The measure will be included in next year’s Finance Bill. The draft legislation, including a tax information and impact note, will be published for consultation in the autumn, to inform the consideration of next year’s Finance Bill—that never happened under the previous Government; this is totally transparent. The costs that have been included very prudently in the Red Book represent a conservative case; they do not include any of the effects or any assumption of what would happen if we reverse this relative decline compared with jurisdictions such as Ireland and Luxembourg so that we have an increasing tax take from people being employed there. The included costs do not reflect the potential boost to stamp duty reserve tax revenue— empirically, investment funds tend to have more active investment strategies than direct investors and are more likely to incur it. Those aspects will be further elaborated during the consultation and the tax information and impact note during the next six months.

[Geraint Davies]

rose—

[Greg Clark]

I want to conclude now. I hope that the House will welcome, as commentators universally have, a significant boost to the competitiveness of a very important sector for jobs in every part of the United Kingdom. I hope that, having had the explanation, the hon. Member for Nottingham East will feel willing to withdraw the new clause and await the formal consultation, which will accompany next year’s Finance Bill.